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Coalition Encouraging Private Business Growth in Iraq

WASHINGTON, Feb. 18, 2004  While not precisely a "chicken-and-the-egg" analogy, many in Iraq are asking which comes first, security or prosperity.

It's a bit of both, said Thomas Foley, director of private sector development for the Coalition Provisional Authority.

"Security and prosperity are related," he said during an interview today. "With prosperity, people have a stake in the economy. There's a lot more pressure for people not to be disrupted."

A second point, he said, is that prosperous people have more money to invest in security. They can fund the law enforcement agencies and pay for the infrastructure that ensures the rule of law.

But security too, is necessary. Prosperity is hard to start, he noted, if the security environment is such that people are afraid to go to work, or if investors are afraid to put their money at risk. "I don't think either could be called the chicken or the egg," he said. "It's somewhere between."

Foley noted that it was in Babylon that commerce was invented. "The private sector, with liberalization since the war, is responding quite effectively," he said. "I don't think it's going to take a very long time before the entrepreneurial spirit comes forth."

Foley said signs of economic progress in Iraq are encouraging. He said business has picked up. In Baghdad, markets are full, new stores are opening daily, and there is a pent-up demand for consumer goods and services.

He said the economy is "coming back pretty strongly." The economic recovery will pick up speed once the supplemental funds approved last year start to be spent.

An example of this entrepreneurial spirit occurred right after major combat operations ended in May. Saddam Hussein outlawed satellite dishes, but even as the Saddam statues were being pulled down, some Iraqis were building or importing satellite dishes. By the end of May, the dishes were for sale seemingly on every street corner.

Now, as people drive past apartment buildings in Baghdad, "most every balcony has a satellite dish hanging from it," Foley said. "They've done a very effective job of penetrating the market. I think the replacement for the satellite dishes is the cell phone."

That's right. There is now a cell phone system in the country. Foley said there is a cell phone store with a "block-long line of Iraqis waiting to buy them."

But it's not just anecdotal evidence that supports the CPA's contention that the economy is picking up. Unemployment is the best measure, Foley said, and that too is going down.

Last summer, CPA officials estimated the unemployment rate nationwide was at more than 50 percent. "Now, the Ministry of Planning has released a 28 percent number, which conforms with two CPA numbers that put unemployment (rates) in the mid-20s," he said. "It's still way too high, but it's better than it was, and it seems to be moving in the right direction."

The private sector is leading the economy today, but the public sector drove the economy during the Saddam Hussein regime, and it still has an inordinate influence. "As long as the public sector is large and dominant, this will continue to be a problem," Foley said.

The economic picture is different in different parts of the country. In the Kurdish area in the north, many of the changes needed to facilitate business and commerce already have taken root. "They have in place a quite active free- market economy," Foley said.

Other areas are not as far along. The areas around Ramadi, Fallujah and Tikrit the heart of the Sunni Triangle have much higher unemployment rates. The southern part of the country places like Umm Qasr, Basra and Nasiriyah are doing better, Foley said.

And companies are voting with their feet toward Iraq. U.S., international and regional companies are investing in the country. Among the companies investing in Iraq are John Deere, MCI, Hewlett-Packard, IBM, Pepsi, Motorola, Boeing, Raytheon, Starwood, Price Waterhouse Coopers, Nestle and many others. Defense Secretary Donald H. Rumsfeld has said "capital is a coward." Investors shy away from areas where money is at risk and invest it where it is more secure. Companies such as these investing in Iraq, Foley said, are an indication that international investors believe in the future of a democratic Iraq.

But the CPA is not depending on people just coming to them, Foley said. He is leading an effort to persuade European companies to invest in Iraq next week, and will visit Iraq's neighbors the following week. He will take the "road show" to the Far East in April.

Foley's office works closely with the Agency for International Development and the military's civil affairs teams. They are all in the business of encouraging Iraqi business and stimulating the economy, he said.